Tax Avoidance and Evasion

TAX AVOIDANCE AND EVASION

There are a number of benefits to paying taxes but people still try to
cheat the government by not paying. Tax evasion and Tax
avoidance are two concepts that are similar and sometimes used
interchangeably. In this article, we explain the differences between
them.

Key takeaways
DIFFERENCE BETWEEN TAX EVASION AND TAX AVOIDANCE
Tax avoidance is a legal way of reducing tax liability, while tax
evasion is an illegal means of not paying taxes.
Different tax laws apply in different countries.
Tax avoidance is done through tax planning and before tax
liability is incurred.
Tax evasion is a criminal offence which may result in fines,
penalty or imprisonment.
S/N Tax Evasion Tax Avoidance
1.
It is an illegal means of avoiding
paying taxes.
It is a legal means of reducing tax
payments.
2.
It is criminal and defaulters may be
punished.
It is not a crime and not against the laws
regulating taxes.
3. It is a fraud. It is a means     to reduce tax liability.
4. It is done through illegitimate means. It is done through legal loopholes.
5. It is done after tax liability. It is done before tax liability.
WHAT IS TAX AVOIDANCE?
Tax avoidance is the use of legal methods to reduce the amount of
tax paid by a person, business, or organization. Here, people find
ways to reduce tax liability and optimize their income through
legal means. Tax avoidance involves taking advantage of the
loopholes in the system. Since these loopholes are within the law,
tax avoidance is not considered a crime.
False declaration of income, assets, or profits.
Falsifying records.
Underpayment of taxes.
Deliberately keeping business off the books.
Exaggerating expenditure, etc.
EXAMPLES OF TAX EVASION
Tax avoidance is the use of legal methods to reduce the amount of tax
paid by a person, business, or organization. Here, people find ways to
reduce tax liability and optimize their income through legal means. Tax
avoidance involves taking advantage of the loopholes in the system.
Since these loopholes are within the law, tax avoidance is not considered
a crime.
Reduces revenue for the government.
Affects the synergy between the government and the public.
Influences more people to evade their taxes.
Leads to economic instability and less growth.
It could lead to fines and imprisonment.
CONSEQUENCES OF TAX EVASION
WHAT IS TAX AVOIDANCE?
Increasing expenses in getting income.
Increasing the number of children.
Giving your assets to your children to avoid inheritance tax.
Investing in a retirement plan.
Donating to charity to claim deductions, etc.
EXAMPLES OF TAX AVOIDANCE
Although tax avoidance reduces the amount of deductible tax, it is still
the law and therefore legal. Through proper tax planning, an individual
can find ways to reduce the payable tax from their income.
IS TAX AVOIDANCE LEGAL?
Tax systems and laws vary from country to country and there are
different laws and rules that regulate taxation in different countries.